Segal's insurance trial begins

U.S. contends he ignored warnings

defense calls case revenge

Michael Segal used a combination of charm and fear to ward off repeated warnings by outside auditors and executives at his insurance brokerage that gaping deficits in a company trust fund made him criminally liable, prosecutors charged Tuesday at the start of Segal's racketeering and fraud trial.

But an attorney for Segal contended the former executives used the trust-fund problems as leverage to try to wrest control of Near North Insurance Brokerage from Segal and reap millions of dollars in profits for themselves.

Once that didn't work, the former executives, by then employed by rival insurance brokerages, went to the FBI in an act of vengeance in an attempt to steal clients from Segal, attorney Daniel Reidy charged.

Reidy conceded that accounting at Near North was a mess and that the premium trust-fund account might have been out of balance, but he said Segal had no intent to defraud.

Segal, 61, a businessman with wide political contacts and influence, and Near North are on trial in federal court in Chicago on a 28-count indictment.

In opening remarks to a federal jury, Assistant U.S. Atty. Virginia Kendall charged that Segal stole from the trust fund to acquire businesses and expand his company, give free or discounted insurance to VIP customers and make hidden campaign contributions.

Kendall also alleged he stole insurance credits owed to customers, including $90,000 overpaid by one client, the Texas Rangers baseball team, and pocketed as much as $100,000 a year in cash taken from company coffers and improperly expensed to postage.

Kendall contended that accounting firms and numerous Near North executives repeatedly warned Segal since 1996 that the premium trust-fund account was illegally in the hole--by as much as $24 million by late 1999.

Segal's reaction varied, Kendall said. Sometimes he "pooh-poohed the issue," other times he falsely promised to fix the problem and still others he tried to make other people scapegoats, she said.

One moment Segal could be charming and the next explode in anger, creating an atmosphere of fear and retaliation intended to keep executives from betraying him, Kendall alleged.

"More than one witness left Segal's office with a churning stomach and a pounding head, fearful of confronting the man," Kendall told jurors. "This atmosphere of fear was perfect cultivation for the growth of Segal's wealth through theft."

By the summer of 2001, though, an exodus occurred among Near North upper management after managers became convinced that Segal "had no intent to follow the law," Kendall said.

Fearful the former executives would go public about the misuse of the trust fund, Segal beat them to the Illinois Department of Insurance to report the discovery that the trust fund was being operated illegally, Kendall contended.

Twice, then-Gov. George Ryan called the head of the Insurance Department to express interest in the matter, Kendall said.

Between June and November 2001, Segal put $32 million back into the trust fund, she said.

Among those on the VIP list to receive free insurance was powerful Chicago Ald. Edward Burke (14th), whose annual premium of more than $3,000 was paid in full by Segal with money stolen from the trust fund, Kendall alleged. Burke has previously denied receiving free insurance from Segal.

Executive wore a wire

By fall 2001, Daniel Watkins, Near North's accounting chief, agreed to cooperate with the FBI and wore a hidden recorder to secretly tape Segal, according to the prosecutor.

When Watkins showed a statement placing the blame on Segal for the illegal payouts from the petty-cash fund, Segal fired him, Kendall said.

Just 19 days later, when the FBI confronted him, Segal, still unaware of the secret tape, denied any knowledge of thefts from the petty-cash account, Kendall said.

Segal's lawyer, Reidy, emphasized as he began his opening statement to jurors that no Near North customers or insurance carriers lost any money.

Reidy said accounting for the premium trust-fund account was "essentially dysfunctional" and that Segal, frustrated by the problems, was skeptical of the shortfall reported to him.

But Segal wasn't "a Lone Ranger" in his beliefs, said Reidy, citing a letter by Deloitte & Touche that didn't raise problems with the deficits in the trust fund.

Defense cites greed

The former executives had the "age-old motivation of greed" for turning against Segal, Reidy contended. When they failed to wrest the company from him, they sought to get Segal prosecuted, enticing federal authorities by saying Segal was close to many politicians and could lead them to other corruption cases, Reidy said.

Jury selection was delayed for a while Tuesday after four prospective jurors overheard an Associated Press reporter make disparaging comments to Segal in a hallway outside the courtroom.

According to two reporters who heard the conversation, reporter Mike Robinson told Segal in colorful terms that Segal was going to go to prison and that he'd soon be wearing a prison jumpsuit.

James Reindl, chief of AP's Chicago bureau, later said Robinson was taken off trial coverage. "Our reporter acted inappropriately and acknowledges it," he said.